New Payment Methods Are Aimed at People on the Go

You're running late and craving that morning coffee, but the long line in front of the barista makes you want to turn around and go without. People are fumbling for change or dragging out debit cards, even for small purchases. Isn't there a better way to pay for something?

For more and more consumers, the answer to that question is going to be yes. A whole host of players -- retailers, credit card companies, payment services, telecom giants, consumer electronics firms, and even transit authorities -- are joining forces to develop and promote cutting-edge technologies for mobile payments.

Think about how quickly that coffee line would shrink if all you had to do was wave your smartphone in front of a point-of-sale (POS) reader. That payment technology is already here. More phones are being equipped with Near Field Communication (NFC) chips, one of the prime mobile payment approaches now being rolled out.

The global research firm Berg Insight estimates that the worldwide installed base of NFC-ready POS terminals will jump from just 3.9 million units in 2011 to 43.4 million in 2017 -- an annual growth rate of nearly 50 percent. The penetration rate is projected to be highest in North America, where 86 percent of terminals could be NFC-ready by 2017.

NFC lets devices share information at a distance of less than 4cm and at a maximum communications speed of 424kbps. The bidirectional capability makes it ideal for establishing connections with a simple touch.(Source: NFC Forum)

Looking at mobile payments as a whole, Forrester Research predicts that annual transactions will grow at a hefty compound annual rate of 48 percent to reach $90 billion in the US alone by 2017. Forecasters say the bulk of that spending will be so-called proximity payments, the kind that consumers make at POS terminals in stores, at transit stations, and at vending machines, as opposed to paying a credit card bill via smartphone.

Behind the surge
The reasons for the increased adoption of mobile payments boil down to three key factors: speed, ease of use, and enhanced security. American Express says payments made through contactless mobile payment technology (such as NFC or RFID systems) are 63 percent faster than cash transactions and 53 percent faster than credit card purchases. That can make a big difference to a commuter scrambling to make a train. On the convenience side, the digital wallets now being offered by such companies as Google, PayPal, Square, and Isis organize your credit and loyalty cards in an app on your smartphone, so you can get rid of that bulging leather wallet.

Taking portability a step further, Walt Disney Co. is experimenting with the MagicBand, a wristband with an embedded RFID chip. Guests can use this cloud-linked MagicBand to enter their Disney Resort hotel room, buy food and merchandise, and accelerate access to theme park attractions. From a marketing standpoint, the device also can provide important data on consumer purchasing trends.

Proponents of mobile payments are also striving to add security features beyond even those created for credit cards, which spawned PINs, embedded smart chips, and numerous account verification techniques. With contactless mobile payments, you can now activate smart chips wirelessly. The Isis digital wallet, for example, is protected by a unique four-digit PIN that the consumer chooses. Payment card credentials are stored on a secure element chip embedded in the smartphone's subscriber identity module (SIM card), and constantly changing cryptographic codes prevent counterfeiting. At any time, you can quickly suspend your digital wallet remotely from a smartphone with a call to your wireless carrier or a visit to the digital wallet website.

For global travelers, mobile payment technology offers benefits in both security and convenience. Travelers avoid the risks of dealing with unfamiliar currencies, and the cloud sorts out exchange rates in real-time.

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Digital wallet acts much like a physical wallet. The wars among companies are raging. There are those who became disappointed by PayPal as an online installments option ever since it was bought by eBay. Many have felt the sting of lost resources, account freezes and other service nightmares that some may say rest just this side of downright fraud. Then there are the charges. For those who desire options, there's Dwolla, an online installments website that claims it does a better job than the competition, for less cash. So who will win the war and be your digital wallet provider?

In some parts of the world, mobile banking and payments have been around for years. Countries that experience regular brown-outs and have few landlines have embraced mobile technology. In may ways, they've surpassed Europe and the US in mobile phone use and application in everyday life.

I wonder if hacking is a problem in those markets. If so, how do they deal with it?

I think this article insightfully mentioned the large software challenge that must be overcome. Developing middleware to link the gateway service to the financial service is no small task. For this new technology to be successfull, someone will have to be willing to pay for this significant development expense for each type of system deployed.

Surely hacking is one of the major problem in NFC mode of transfer. Other problem will be when mobile is lost. Is there any unique ID given for NFC, so that when smartphone is lost then immediately we can disable NFC apps. Else we will be in a situtaion where we are forced to disable all credit cards and request for new.

Thanks for elaborating timingold. As someone else mentioned, there are nonelectronic methods available - but those can be bulky and time consuming as well as also having added cost. The electronic solutions you mentioned are becoming more common and I have seen them in use. These trail rides were three years ago and folks out in the country (our target business audience) are typically behind the curve when using new technology. Smart phones are not as common in rural areas. It will be interesting to see how that changes. I was out riding yesterday and saw another rider on her horse, having a conversation on a cell phone. Hopefully she doesn't try to "text and ride!" lol

...but how many counterfeit bills and duplicate cards are in circulation already?

There MUST be a heck of a lot since the U.S. Mint is set to roll out a new $100 bill, for about the fourth time in less than 20 years!!!!!! It's supposed to be on store shelves sometime this summer from a report I heard recently. This new bill is gonna have some "disappearing hologram, and some other stuff to thwart counterfeiters. That's what they said the last two times.... guess they were wrong!

The innovators in mobile payment haven't forgotten small businesses. Companies like Square and PayPal were founded on the idea that payments should be easy and accessible for everyone; they offer easy to use, low cost solutions that allow you to accept mobile payments using your smartphone or tablet. I would expect that to continue as the technology shifts from magnetic stripes to the tap of your NFC smartphone.

On the security front, the impetus for new mobile payment technologies isn't just its Star Trek visuals. Mobile technology enables multi-factor authentication to really make sure that you are the account holder and that your transaction is authorized. And, the incorporation of cryptographic hardware elements like the Security Element embedded in the smartphone SIM card makes your unique payment credentials difficult to duplicate. No solution will totally foolproof, but how many counterfeit bills and duplicate cards are in circulation already?

Nancy, non-electronic methods to handle credit card payments have been availablke since the mid 1960's. They are slower and quite a bit lewss convenient, but they work very well. I have used my card to purchase items at swap gatherings and at parking-lot sales, and that has been only slightly more difficult than using the slide-through credit card reader at the grocery store.

I agree that the electronic smartphone method of payment will bring about a whole new level of hacking and fraudulent billing. Within days of adoption of this technology somebody will come up with a receiver to record these near field transactions and figure out the code enough to duplicate the transaction, if nothing else. Of course those who wish to sell this new technology will say it can't be done, but what secure system has not been hacked already? And even if the link between the smartphone and the POS device is fairly secure, the link beond that is probably not going to be very secure, since it will be a cheap wireless interface.

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